National Electronics Holdings Limited — M&A Activity 2000

May 12, 2000

Listed Company Information

CHINESE EST H<0127>CHI CHEUNG<0112>- Joint Announcement & CHI CHEUNG Resumption of Trading Each of The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. CHINESE ESTATES HOLDINGS LIMITED CHI CHEUNG INVESTMENT COMPANY,LIMITED (Incorporated in Bermuda with (Incorporated in limited liability) Hong Kong with limited liability) Joint Announcement -PROPOSED RESTRUCTURING OF CHI CHEUNG 1. Capital Restructuring and Debt Restructuring of Chi Cheung 2. Subscription of New Shares by Chinese Estates 3. Issue of Warrants by Chi Cheung 4. Major Transaction 5. Application for Whitewash Waiver SUMMARY Further to the announcement on 14 April 2000, the board of directors of Chi Cheung Investment Company, Limited ("Chi Cheung") announces the details of the Formal Agreement entered into on 11 April 2000 and a supplemental agreement and an extension letter both dated 5 May 2000 between Chi Cheung, Billion Up and Chinese Estates Holdings Limited ("Chinese Estates") regarding the Capital Restructuring and Debt Restructuring of Chi Cheung. The Formal Agreement is subject to a number of conditions and may not be completed if any of such conditions is not fulfilled or waived, as appropriate, or if it is terminated by Chi Cheung or Billion Up. Shareholders and investors should exercise caution when dealing in the shares of Chi Cheung. Proposed Capital Restructuring -the Capital Reduction Scheme by reducing the nominal value of each share in the authorized share capital of Chi Cheung from $0.20 to $0.10; or -another capital reorganization, restructuring or other transaction(s) for achieving similar effect or purpose which Chi Cheung expects would take a shorter period of time as the Capital Reduction Scheme ("Alternative Capital Restructuring"). Proposed Debt Restructuring It involves the restructuring of Chi Cheung's Secured Indebtedness and Unsecured Indebtedness due directly or indirectly to its Creditors by: (a) settlement of partial Secured Indebtedness of approximately $277.8 million by: -transfer or sale of collateral properties (b) full settlement of Unsecured Indebtedness of approximately $665.6 million of Chi Cheung with: -cash payment of $70 million; -issue of 662.5 million New Shares by Chi Cheung; and -issue of 594.3 million Warrants (exercise price of $0.10 for one New Share) carrying rights to subscribe in cash for New Shares up to approximately 20% of the issued share capital of Chi Cheung immediately after Completion. Billion Up will grant to the Unsecured Creditors a Put Option to, at any time within 6 months from Completion, require Billion Up, or independent third parties procured by Billion Up through Platinum Securities Company Limited or a securities broker designated by the Unsecured Creditors, to purchase any of the New Shares and Warrants they received under the Debt Restructuring at a price of $0.10 per New Share and $0.01 per Warrant. Asset Injection and Subscription Billion Up will inject into Chi Cheung:- -development and investment properties in Hong Kong valued at an aggregate amount of $213 million; and -$60 million in cash. In consideration of such asset injection and cash injection under the Subscription, Billion Up will be issued a total of 1,987.5 million New Shares as consideration for $265 million, with the balance of the consideration of $8 million (subject to adjustment under the Formal Agreement) remaining outstanding as an interest-free shareholder's loan due by Chi Cheung to Billion Up. The Completion is expected to take place on or before the tenth business day after 31 December 2000. Previous proposed restructuring of Chi Cheung A restructuring agreement signed between Chi Cheung and another investor was terminated on 7 April 2000 as announced by Chi Cheung on 14 April 2000. The granting of a Whitewash Waiver by the SFC is a condition precedent to Completion. Chinese Estates and Billion Up will submit an application to the SFC for the Whitewash Waiver. A further announcement will be made upon the signing of the Compromise Agreement with the Creditors of Chi Cheung, which is expected to be no later than 31 May 2000. Resumption of trading of Chi Cheung's shares Trading in the shares of Chi Cheung has been suspended since 10:00 a.m. on 31 January 2000 at the request of Chi Cheung. Chi Cheung has applied to the Stock Exchange for the resumption of trading in its shares commencing from 10:00 a.m. on 12 May 2000. Financial effects of the restructuring proposal Based on the unaudited consolidated management accounts of Chi Cheung, the net asset deficit before minority interest of Chi Cheung as at 31 December 1999 was approximately $733 million. Subject to operating expenses and restructuring costs to be incurred from then to Completion, after the implementation of the Formal Agreement, Chi Cheung is expected to have a positive net asset value of approximately $210 million before exercise of any Warrants but after extinguishing its Unsecured Indebtedness of approximately $665.6 million out of its approximately $943.4 million total indebtedness as at 31 October 1999, and will enjoy the benefits of the rental income derived from the carparks and profits generated from future property development. Upon Completion, the only remaining debt of Chi Cheung would be the Written Down Secured Indebtedness of approximately $277.8 million. INFORMATION OF THE PARTIES to the formal agreement Chi Cheung Chi Cheung is principally engaged in the business of property development and investment. Billion Up Billion Up is a company incorporated in the British Virgin Islands with limited liability and is a wholly owned subsidiary of Chinese Estates. In mid 1999, Billion Up executed various agreements in relation to the financial restructuring of the Chi Cheung Group but the proposed restructuring was terminated on 7 September 1999. Other than such documents and the Formal Agreement, Billion Up has not conducted any other business. Chinese Estates Chinese Estates, a company whose securities are listed on the Stock Exchange, and its subsidiaries are principally engaged in the businesses of property investment (holding properties for rental income) and development (acquisition/construction and sale of land properties) in Hong Kong and the PRC, securities investment and money lending. Chinese Estates has interests in two other property companies listed on the Stock Exchange, namely, Evergo China Holdings Limited ("Evergo China") and The Kwong Sang Hong International Limited ("Kwong Sang Hong"), with effective shareholding interests of approximately 47.9% and 26.8% respectively. Evergo China is principally engaged in property investment and development in the PRC and Kwong Sang Hong is principally engaged in property development, investment and trading in Hong Kong. Chinese Estates aims to maintain Evergo China as its PRC property arm and to retain its shareholding interest in Kwong Sang Hong as a passive investment. The transactions contemplated by the Formal Agreement do not constitute a notifiable transaction for Chinese Estates under the Listing Rules. THE RESTRUCTURING PROPOSAL 1. Capital Restructuring The current issued share capital of Chi Cheung consists of approximately 321 million shares of nominal value of $0.20 each. The share capital of Chi Cheung is proposed to be restructured by way of the Capital Reduction Scheme or the Alternative Capital Restructuring to the effect that the nominal value of each share in the authorized share capital of Chi Cheung will be reduced from $0.20 to $0.10, representing a reduction of the aggregate nominal value of the existing issued share capital of Chi Cheung from approximately $64.2 million to $32.1 million. The Capital Restructuring will result in the existing issued share capital of Chi Cheung becoming consisted of approximately 321 million shares of $0.10 each. 2. Debt Restructuring The total indebtedness of Chi Cheung was approximately $943.4 million as at 31 October 1999, being the date of the latest assessment made by the directors of Chi Cheung. The assessment is made as at this date as it is the cut-off date last agreed between the Creditors and Chi Cheung before the Formal Agreement was signed. The total market value of all mortgaged properties of the Chi Cheung Group as at 31 January 2000, the latest valuation date on which the properties were valued by FPD Savills (Hong Kong) Limited, was approximately $278.2 million. The total Unsecured Indebtedness of Chi Cheung is, therefore, estimated to be approximately $665.6 million for the purpose of the Formal Agreement. Original total indebtedness Indebtedness (including interest due up of Chi Cheung to 31 October 1999) (approximately $ million) Less Balance Total secured value on collateralized properties as at 31 January 2000** Unsecured Indebtedness (approximately $ million) (approximately $ million) -------------------------------------------------------------------------- Secured indebtedness 445.9 277.8 (this will become the Written 168.1 (unrecoverable shortfall Down Secured Indebtedness*) of the original secured debt) Unsecured indebtedness 497.5 0.0 497.5 --------------------------------------- Total 943.4 277.8*** 665.6 * It is intended by Chi Cheung that the Written Down Secured Indebtedness will be settled by: (1) transfer of the collateral to relevant secured creditor; (2) sale of the collateral to 3rd parties to realize the value of the collateralized property; or (3) being sold later and the debt will be carried on the Chi Cheung books as secured debt. ** Where the valuation of the properties is higher than the corresponding secured loan, the loan value is used here instead. *** Assuming all collateral properties are not sold before Completion The Formal Agreement sets out the proposed terms on which the indebtedness of Chi Cheung will be settled with the Creditors. Such proposed terms are subject to agreement by the Creditors. It is expected that no Creditor except Rapid Growth Holdings Limited ("Rapid Growth") as a result of its shareholding in Chi Cheung will hold more than 10% of the issued share capital of Chi Cheung at the completion of the Debt Restructuring. Among other terms, all Secured Indebtedness amounting to approximately 445.9 million will be written down to the net realizable/realized value of the underlying collateral. The estimated unrecoverable Secured Indebtedness will be added to the Unsecured Indebtedness to arrive at the total Unsecured Indebtedness. In full and final settlement of total Unsecured Indebtedness, the Creditors will receive in aggregate: (a) a cash payment from Chi Cheung of $70 million, the amount of which is composed of the $60 million cash to be paid by Billion Up under the Subscription and $10 million from internal resources of Chi Cheung; (b) the allotment and issue of 662.5 million New Shares (representing approximately 22.3% of the enlarged issued share capital of Chi Cheung immediately after the Completion but before the exercise of the Warrants) by Chi Cheung, credited as fully paid; and (c) the issue of 594.3 million Warrants, exercisable within 3 years from Completion for New Shares amounting up to approximately 20% of the enlarged issued share capital immediately after Completion (the issue of Warrants will be subject to full compliance of Chapter 15 of the Listing Rules and further announcement on the terms will be made). (d) In relation to the New Shares and Warrants to be allotted and issued to the Unsecured Creditors by Chi Cheung under the Debt Restructuring, Chinese Estates and Billion Up will grant a non-transferable Put Option to such Unsecured Creditors pursuant to which Billion Up agrees, upon an exercise of such Put Option, to purchase or procure the purchase by independent third parties of such New Shares and Warrants at the price of $0.10 per New Share and $0.01 per Warrant. The Put Option is exercisable at any time within the period of six months commencing immediately after Completion. It is the intention of Chinese Estates and Billion Up to place such New Shares and Warrants in respect of which the Put Option has been exercised to independent third parties through Platinum Securities Company Limited or any designated broker, on a fully underwritten basis, as the Unsecured Creditors may so select. The Written Down Secured Indebtedness of Chi Cheung, estimated to be $277.8 million, will be carried on the books of Chi Cheung, accruing interest at the existing contract interest rates (before default) of the respective loans with effect from Completion until sale of the relevant collateral properties. Upon sale of the relevant collateral properties after Completion, it is intended by Billion Up that the sale proceeds would be applied: (i) Firstly, to the expenses incurred by Chi Cheung in managing and selling the collateral properties; (ii) Secondly, to the loan interest on the Written Down Secured Indebtedness accrued from Completion; and (iii) the balance shall be paid to the relevant Secured Creditor except that where (a) there is a surplus amount in excess of the Written Down Secured Indebtedness, the relevant Secured Creditor will have to reimburse Chi Cheung the amount of cash and/or transfer to Billion Up the number of New Shares and Warrants (or cash equivalent if the New Shares and Warrants have already been sold) as if the unrecoverable portion of the Secured Indebtedness at Completion was lower than the amount used at Completion by the surplus amount; and (b) if there is a shortfall in the net proceeds paid to the relevant Secured Creditor compared to the Written Down Secured Indebtedness, Chi Cheung will pay the amount of cash and allot the number of New Shares and, subject to the Listing Rules, the Warrants which the relevant Secured Creditor would have received as if the unrecoverable portion of its Secured Indebtedness at Completion was higher than the amount used at Completion by the shortfall amount. 3. Scheme of Arrangement Chi Cheung will use its best endeavours to procure that by 22 May 2000, 75% of the Creditors in value shall have executed the Compromise Agreement. If on or before 31 May 2000, more than 75% but less than 100% of the Creditors in value have executed the Compromise Agreement on terms reasonably satisfactory to Billion Up by reference to the proposed terms in the Formal Agreement, Chi Cheung shall undertake a Scheme of Arrangement with its Creditors upon such terms. As at 10 May 2000, Creditors with an attributable value of approximately 66% of the Unsecured Indebtedness have already given in principle support for the Debt Restructuring. The Scheme of Arrangement refers to the scheme under section 166 of the Companies Ordinance and details of which are to be negotiated between Billion Up, the Creditors and Chi Cheung, subject to further legal advice and court direction, where applicable. 4. Asset Injection Upon Completion, Billion Up will procure the sale to Chi Cheung: (a) the Super Series Share, being one share constituting the entire issued share capital of Super Series; (b) the Super Series Shareholder's Loan; (c) the Star Glory Share, being one share constituting the entire issued share capital of Star Glory; and (d) the Star Glory Shareholder's Loan. The consideration payable by Chi Cheung for the Super Series Share and the Star Glory Share will be $7.8 for each of such shares, being the Hong Kong dollar equivalent of the nominal amount of each share of par value one United States dollar of the respective companies. The consideration for the assignment of the Super Series Shareholder's Loan and the Star Glory Shareholder's Loan is, in aggregate, $213 million (being $23 million for the Star Glory Shareholder's Loan and $190 million for the Super Series Shareholder's Loan) and will be satisfied, as to $205 million, by the allotment and issue by Chi Cheung of 1,387.5 million fully paid New Shares to Billion Up and as to the balance of $8 million (subject to adjustment under the Formal Agreement) will be satisfied by an interest-free shareholder's loan due by Chi Cheung to Billion Up which will be repayable in one lump sum at the end of an eighteen-month period commencing from the date of Completion. The 1,387.5 million New Shares to be issued represents approximately 432.2% of the existing issued share capital of Chi Cheung and 46.7% of the enlarged issued share capital of Chi Cheung immediately after Completion but before the exercise of the Warrants. The issue price of each New Share to be issued (based on the valuation of the properties being injected at $205 million) will be approximately $0.15. The major assets in Super Series and Star Glory are the wholly-owned interests in companies which hold, respectively, a commercial development property located at Nos. 253-265 Queen's Road Central and Nos. 30-38 Hillier Street, Hong Kong and 80 car parking spaces at Aberdeen Centre, Nos. 1-23 and 6-12 Nam Ning Street, Aberdeen, Hong Kong. The commercial development property is at the construction phase of having its piling work completed. 5. Subscription for Shares Billion Up will subscribe for a further 600 million New Shares in Chi Cheung in cash at $0.10 per New Share at Completion. (For the details of the SHAREHOLDING STRUCTURE, please refer to the press announcement today.) Note: * The shares of Chi Cheung held by Rapid Growth are pledged to a financial institution in connection with a loan granted to Rapid Growth. # Including Rapid Growth, a Bondholder of an aggregate outstanding amount of approximately $187 million (which are pledged to the same financial institution as that for the shares of Chi Cheung held by Rapid Growth) and an unsecured creditor of Chi Cheung for approximately $48 million. Also includes Paliburg Holdings Limited, as an unsecured creditor of Chi Cheung for approximately $48 million. -All number of shares and percentage of shareholdings are approximates only. - -------indirect shareholding CONDITIONS PRECEDENT TO COMPLETION Completion of the transactions contemplated under the Formal Agreement is conditional on, amongst other things, the following conditions precedent being fulfilled or waived by Billion Up (save for conditions (b), (d) (i), (g), (h) and (l) which cannot be waived) on or before various dates under the Formal Agreement, with the latest date being 31 December 2000: (a) 75% of the Creditors in value having entered into the Compromise Agreement by 22 May 2000; (b) the shareholders of Chi Cheung having approved in extraordinary general meeting:- (i) the Formal Agreement, the Asset Injection and the Subscription; (ii) the Capital Restructuring; (iii) the Debt Restructuring; (iv) the Whitewash Waiver; (v) the allotment and issue of the New Shares pursuant to the Subscription, the Asset Injection, the Debt Restructuring and the exercise of the Warrants; and (vi) the issue of the Warrants; (c) consents (if applicable) of the Bondholders for the Formal Agreement and the Debt Restructuring having been obtained; (d) (i) the courts of Hong Kong granting an order confirming the Capital Reduction Scheme, if applicable; and (ii) the Capital Restructuring becoming effective; (e) completion of the Debt Restructuring taking place simultaneously with Completion of the Formal Agreement (either pursuant to the Compromise Agreement or by way of the Scheme of Arrangement); (f) the Stock Exchange having confirmed that Chi Cheung will not be treated as a new applicant for listing and such confirmation not having been revoked; (g) the Whitewash Waiver having been obtained from the SFC; (h) the Stock Exchange granting the listing of, and permission to deal in:- (i) the New Shares upon completion of the Capital Restructuring; (ii) the New Shares to be issued pursuant to the Asset Injection, the Subscription and the Debt Restructuring; and (iii) the Warrants and the New Shares to be issued pursuant to the exercise of the Warrants; (i) the settlement and termination of all liabilities, litigations and claims against Chi Cheung unless such aggregate liabilities do not exceed $2 million; (j) the resumption of trading of the shares of Chi Cheung on the Stock Exchange and such shares continuing to be listed and traded up to Completion; (k) the existing cash balance being maintained by Chi Cheung on Completion after payment of, or provision for all professional fees and operational expenses payable up to and before Completion, being not less than $15 million (excluding any net sale proceeds arising out of the sale of any assets of the Chi Cheung Group and the proceeds of the Subscription) (the said $15 million will be reduced by $500,000 per month if Completion takes place after 1 October 2000, up to a maximum of $1,500,000); and (l) (i) all the Creditors having agreed on the terms of the Debt Restructuring by entering into the Compromise Agreement by 31 May 2000; or (ii) if less than 100% Creditors but more than 75% Creditors executed the Compromise Agreement, a Scheme of Arrangement being implemented under section 166 of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong). Termination The Formal Agreement may be terminated upon the occurrence of certain termination events including, amongst other things, Billion Up failing to prove good title to the Super Series Property and the Star Glory Property or events resulting in a material and adverse deterioration in the value of the Super Series Property. If the Formal Agreement is terminated, the Completion and the completion of the Debt Restructuring will not proceed. Takeover Implications for Chinese Estates and Billion up Upon Completion, Billion Up will own approximately 66.9% of the then enlarged issued share capital of Chi Cheung. Under the Code, upon Completion, Billion Up and parties acting in concert with it will be obliged to make an unconditional cash offer to acquire all the New Shares of Chi Cheung, other than the New Shares already owned by Billion Up and parties acting in concert with it (if any), at an offer price of approximately $0.15 per New Share. It is a condition precedent to Completion that the Whitewash Waiver shall have been obtained. An application will be made by Chinese Estates and Billion Up to the SFC for the Whitewash Waiver, which, if granted, would normally be subject to the approval of the shareholders of Chi Cheung who are not involved or interested in the Formal Agreement and the Debt Restructuring by way of a poll. Such Whitewash Waiver may or may not be granted. Under the Formal Agreement and the supplemental agreement, the Whitewash Waiver condition will not be waived by Billion Up. If the Whitewash Waiver is not obtained, the Formal Agreement will be terminated. Financial effects of the restructuring proposal Based on the unaudited consolidated management accounts of Chi Cheung, the net asset deficit before minority interest of Chi Cheung as at 31 December 1999 was approximately $733 million. Subject to the operating expenses and restructuring costs, estimated to be $7.6 million as at 25 April 2000, to be incurred from then to Completion, after the implementation of the Formal Agreement, Chi Cheung is expected to have a positive net asset value of approximately $210 million before exercise of any Warrants but after extinguishing its Unsecured Indebtedness of approximately $665.6 million out of its approximately $943.4 million total indebtedness as at 31 October 1999 and will enjoy the benefits of the rental income derived from the carparks and profits generating from future property development. Upon Completion, the only remaining debt of Chi Cheung should be the Written Down Secured Indebtedness of approximately $277.8 million. MAINTAINING THE LISTING OF CHI CHEUNG Chinese Estates intends to maintain the listing of the shares of Chi Cheung on the Stock Exchange after Completion. Chi Cheung will apply to the Stock Exchange for the listing of, and permission to deal in, the New Shares to be issued as a result of the Capital Restructuring, Debt Restructuring, Asset Injection, Subscription and exercise of the Warrants. An application will also be made to the Stock Exchange for the listing of the Warrants. To the extent that Billion Up is under the Put Option to purchase the New Shares issued to the Creditors which would result in breaching the minimum public float requirement of the Listing Rules, Chi Cheung and Billion Up will endeavour to maintain the public float of not less than 25% of the issued share capital of Chi Cheung. It is the intention of the future directors of Chi Cheung to maintain the listing of the shares on the Stock Exchange after Completion. Accordingly the future board of directors of Chi Cheung and Chi Cheung will jointly and severally undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists for the shares of Chi Cheung. The Stock Exchange has stated that it will closely monitor trading in the Chi Cheung's shares if less than 25% of the Chi Cheung's shares are held by the public. The future directors of Chi Cheung are aware of the possibility of Chi Cheung's public float falling below 25% immediately after Completion and will address this issue accordingly. The Stock Exchange will also closely monitor all future acquisitions or disposals of assets by Chi Cheung. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in Chi Cheung being treated as if it were a new listing applicant. If the Stock Exchange believes that: -a false market exists or may exist in the shares of Chi Cheung; or -there are too few shares of Chi Cheung in public hands to maintain an orderly market, it will consider exercising its discretion to suspend trading in Chi Cheung's shares. REASONS FOR THE ASSET INJECTION AND the SUBSCRIPTION For Chi Cheung Chi Cheung has been financially distressed since November 1998 and has been unsuccessful in finding an investor which can compromise with its Creditors thus far. A restructuring agreement with another investor was terminated on 7 April 2000 as announced by Chi Cheung on 14 April 2000. Chi Cheung is facing a winding-up petition which has been adjourned to 15 May 2000 and it is uncertain how much time would be allowed by the court if definite restructuring plans are not implemented immediately. The latest proposal from Billion Up and Chinese Estates has been accepted by Chi Cheung and supported by its major creditors as it offers better recovery for the Creditors than all previous restructuring proposals received by Chi Cheung. For Chinese Estates Chinese Estates does not have a listed Hong Kong property development arm which is majority owned. Chinese Estates intends that Chi Cheung will be managed as its Hong Kong property development arm. For future Hong Kong property development project opportunities, Chinese Estates will refer them to Chi Cheung. Chinese Estates will focus on investment property and other investment holding activities but will not be involved in property development projects. further intention Chinese Estates and Billion Up have no plan to further inject any of its business into Chi Cheung and it is the intention of Chinese Estates to develop Chi Cheung as its development property arm in the future. GENERAL Extraordinary General Meeting An extraordinary general meeting of Chi Cheung will be convened to seek the approvals of its shareholders in relation to the Capital Restructuring, the Debt Restructuring, the Asset Injection, the Subscription, allotment and issue of New Shares and issue of Warrants, the Whitewash Waiver and the Formal Agreement. Shareholders, such as Rapid Growth, which are interested in the Debt Restructuring will abstain from voting. Change in the board of directors of Chi Cheung On 1 March 2000 and 7 April 2000 respectively, Mr. Ng Kwok Cheung, Paul and Mr. Tam Pui Tak, Stephen, who were the then Chairman and executive director of Chi Cheung respectively, resigned. Currently Chi Cheung only has two non-executive directors and one executive director, Mr. Cheng Sui Sang, Lawrence. It is proposed that upon Completion, Mr. Joseph Lau, Luen Hung, and Mr. Thomas Lau, Luen Hung will be appointed as directors to the board of Chi Cheung. Two independent non-executive directors will also be appointed to the board of Chi Cheung. Financial Advisers and Independent Financial Adviser After the Unsecured Creditors have entered into the Compromise Agreement with Chi Cheung, Billion Up and Chinese Estates, which is expected to take place no later than 31 May 2000, a further press announcement will be made. An independent financial adviser will be appointed to advise the independent shareholders of Chi Cheung regarding the Formal Agreement and the Whitewash Waiver. Chi Cheung will send a circular to its shareholders and Bondholders which will contain details of the Capital Restructuring, Debt Restructuring, Asset Injection, Subscription and the Whitewash Waiver, a letter from the independent financial adviser to the independent shareholders, a letter from the board of directors and the notice of the extraordinary general meeting. Platinum Securities Company Limited has been appointed as the financial adviser to Chinese Estates and Billion Up. Asian Capital (Corporate Finance) Limited has been appointed as financial adviser to Chi Cheung. The Formal Agreement is subject to a number of conditions and may not be completed if any of such condition is not fulfilled or waived, as appropriate, or if it is terminated by Chi Cheung or Billion Up. Shareholders and investors should exercise caution when dealing in the shares of Chi Cheung. Definitions: "Asset Injection" the acquisition by Chi Cheung of the Super Series Share and the Star Glory Share and the assignment of the Super Series Shareholder's Loan and the Star Glory Shareholder's Loan to Chi Cheung; "Billion Up" Billion Up Limited, a company incorporated in the British Virgin Islands and a wholly owned subsidiary of Chinese Estates; "Bonds" the 4% guaranteed convertible bonds due 2002 in the principal amount of US$30 million issued by Chi Cheung Treasury Limited in 1997 and guaranteed by Chi Cheung; "Bondholder(s)" the holder(s) of the Bonds; "Capital Reduction Scheme" the proposed capital reduction of Chi Cheung by reducing the nominal value of the ordinary shares in its authorised share capital from $0.20 per share to $0.10 per share; "Capital Restructuring" the Capital Reduction Scheme or an alternative capital restructuring, reorganization or other transaction(s) which will achieve similar effect or purpose as the Capital Reduction Scheme, as the case may be, to be carried out by Chi Cheung; "Chi Cheung Group" Chi Cheung and its subsidiaries; "Code" the Hong Kong Code on Takeovers and Mergers; "Completion" completion of the transactions under the Formal Agreement, which is expected to take place no later than the tenth business day after 31 December 2000; "Compromise Agreement" the compromise agreement proposed to be entered into, on terms reasonably satisfactory to Billion Up, for the purposes of documenting the arrangements for the compromise of the total indebtedness of Chi Cheung; "Creditors" the Secured Creditors and the Unsecured Creditors; "Debt Restructuring" the proposed restructuring of the indebtedness and liabilities of Chi Cheung; "Formal Agreement" the agreement entered into between Chinese Estates, Billion Up and Chi Cheung on 11 April 2000 regarding the Capital Restructuring, Debt Restructuring, Subscription and the Asset Injection; "Hong Kong" the Hong Kong Special Administrative Region of the PRC; "Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange; "New Shares" shares of nominal value of $0.10 each in the capital of Chi Cheung immediately following completion of the Capital Restructuring; "PRC" the People's Republic of China; "Put Option" the Put Option to be granted by Billion Up to the Creditors entitling the Creditors to require Billion Up to purchase the New Shares and the Warrants issued to the Creditors under the Debt Restructuring; "Scheme of Arrangement" the scheme of arrangement under section 166 of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong) as may be undertaken by Chi Cheung pursuant to the Formal Agreement; "Secured Creditors" the existing secured creditors of Chi Cheung as at the date of the Formal Agreement; "Secured Indebtedness" the indebtedness of Chi Cheung secured by the properties of the Chi Cheung Group pledged to its Creditors; "SFC" the Securities and Futures Commission in Hong Kong; "Star Glory" Star Glory Limited, a company incorporated in the British Virgin Islands on 12 December 1995 and an indirect wholly owned subsidiary of Chinese Estates; with major assets being 80 car parking spaces at Aberdeen Centre, Nos. 1-23 and 6-12 Nam Ning Street, Aberdeen, Hong Kong; "Star Glory Shareholder's Loan" the interest free shareholder's loan due from Star Glory to Paul Y. Holdings Company Limited (a wholly owned subsidiary of Chinese Estates) as may be outstanding as at Completion; "Star Glory Share" one ordinary share of US$1.00 of Star Glory, constituting the entire issued share capital of Star Glory; "Stock Exchange" The Stock Exchange of Hong Kong Limited; "Subscription" the subscription of the 600 million New Shares by Billion Up; "Super Series" Super Series Limited, a company incorporated in the British Virgin Islands on 8 November 1996 and an indirect wholly owned subsidiary of Chinese Estates; with its major assets being a property development located at Nos. 253-265 Queen's Road Central and Nos. 30-38 Hillier Street, Hong Kong; "Super Series Shareholder's Loan" the interest free shareholder's loan due from Super Series to Paul Y. Holdings Company Limited as may be outstanding as at Completion; "Super Series Share" one ordinary share of US$1.00 of Super Series, constituting the entire issued share capital of Super Series; "Unsecured Creditors" the unsecured creditors of Chi Cheung, the unsecured creditors of Chi Cheung's subsidiaries the indebtedness or liabilities of which have been guaranteed by Chi Cheung and the secured creditors of Chi Cheung whose collateral cannot cover the secured debt due from Chi Cheung; "Unsecured Indebtedness" the unsecured indebtedness of Chi Cheung and its subsidiaries which are guaranteed by Chi Cheung, consisting of unsecured indebtedness and the portion of unrecoverable indebtedness after the Secured Indebtedness has been reduced down to the Written Down Secured Indebtedness; "Warrants" the warrants to be issued by Chi Cheung pursuant to the Debt Restructuring carrying rights to subscribe in cash at a price of $0.10 per New Share for such number of New Shares representing approximately 20% of the enlarged issued share capital of Chi Cheung immediately after the Completion and such subscription right to be exercised within 3 years from Completion; "Whitewash Waiver" a waiver granted by the executive director of the Corporate Finance Division of the SFC under Note 1 of the Notes on Dispensations from Rule 26 of the Code waiving the obligation to make a general offer which would otherwise arise as a result of the entering into or the implementation of the Formal Agreement and/or the Debt Restructuring; "Written Down Secured Indebtedness" the remaining amount of Secured Indebtedness of $277.8 million due from Chi Cheung to its Secured Creditors immediately after Completion, assuming none of the collateralized properties are sold or transferred as at Completion; and "$" Hong Kong dollars. By Order of the Board of By Order of the Board of CHINESE ESTATES HOLDINGS LIMITED CHI CHEUNG INVESTMENT COMPANY, LIMITED Lam Kwong-wai Cheng Sui Sang, Lawrence Company Secretary Company Secretary Hong Kong, 10 May 2000 The directors of Chi Cheung jointly and severally accept full responsibility for the accuracy of the information contained in this announcement other than the information in relation to Chinese Estates and Billion Up and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, the opinions expressed in this announcement have been arrived at after due and careful consideration and that there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading. The directors of Chinese Estates and Billion Up jointly and severally accept full responsibility for the accuracy of the information contained in this announcement other than the information in relation to Chi Cheung and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the opinions expressed in this announcement in relation to Chinese Estates and Billion Up have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.